Assessing the role of microfinance in mitigating income inequality: New evidence from a global context

TY - JOUR

T1 - Assessing the role of microfinance in mitigating income inequality: New evidence from a global context

AU - Jensen, Ane Cecilie Højstrup

AU - Naveed, Amjad

PY - 2025/3

Y1 - 2025/3

N2 - This paper addresses the macro-level relationship between microfinance and income inequality, a subject that is still underexplored in the extant literature. While the micro-level impact of microfinancial initiatives is generally well covered in academic discourse, as is the general relationship between financial development and income inequality, the global nexus between microfinance and its macro-level impact on poverty remains understudied. Using cross-country panel data from 123 countries over the period 2005-2019, we suggest that increasing microfinance at larger scale significantly reduces income inequality. These findings are robust when using different control variables (population, education, and inflation), as well as alternative measures for income inequality, microfinance and methods of estimation. The findings support the use of microfinance as a viable tool to combat income inequality for the poorest segments of society and underscores the importance of developing strong enabling environments around microfinancial activity.

AB - This paper addresses the macro-level relationship between microfinance and income inequality, a subject that is still underexplored in the extant literature. While the micro-level impact of microfinancial initiatives is generally well covered in academic discourse, as is the general relationship between financial development and income inequality, the global nexus between microfinance and its macro-level impact on poverty remains understudied. Using cross-country panel data from 123 countries over the period 2005-2019, we suggest that increasing microfinance at larger scale significantly reduces income inequality. These findings are robust when using different control variables (population, education, and inflation), as well as alternative measures for income inequality, microfinance and methods of estimation. The findings support the use of microfinance as a viable tool to combat income inequality for the poorest segments of society and underscores the importance of developing strong enabling environments around microfinancial activity.

KW - Sustainable finance

KW - Microfinance

KW - Inequality

KW - Macro-level impact

M3 - Journal article

SN - 0303-8300

JO - Social Indicators Research

JF - Social Indicators Research

ER -